Thoughts From the Frontline, May 2019
May 17, 2019
There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”
—David Foster Wallace, This Is Water
May 10, 2019
One difficulty in analyzing our economic future is the sheer number of potential crises. When so much could go wrong (and really right, when the exponential technologies I foresee get here), it’s hard to isolate, let alone navigate, the real dangers. We are tempted to ignore them all. Ignoring them is usually the right response, too. We can “Muddle Through” almost anything.
May 3, 2019
My recent letters described what I think the future will look like. I hasten to add, it isn’t what I think the future should look like or what I want to see. Almost the entire developed world has painted itself into a corner.
April 26, 2019
The US, Europe, and most of the developed world on are the road to Japanification. Like I wrote last week, we will see financial repression, ever increasing deficits, slower growth, etc. Essentially, the rest of us will begin to look like Japan with its astronomical deficits and ultra-dovish monetary policy.
April 19, 2019
“But the emperor has nothing at all on!” said a little child.
April 12, 2019
Regular readers may have noticed me slowly losing confidence in the economy. Your impression is correct and there’s a good reason for it, as I will explain today. The facts have changed so my conclusions are changing, too.
April 5, 2019
Recession is coming. We can debate the timing, but the economy will turn decisively downward at some point. My own analysis, looking at the data available on April 4, says recession isn’t likely this year but unfortunately looks very probable in 2020.
March 29, 2019
This month, the Federal Reserve joined its global peers by turning decisively dovish. Jerome Powell and friends haven’t just stopped tightening. Soon they will begin actively easing by reinvesting the Fed’s maturing mortgage bonds into Treasury securities. It’s not exactly “Quantitative Easing I, II, and III,” but it will have some of the same effects.
March 22, 2019
Matching the stock market’s long-term average returns sounds like it should be easy, if you’re patient enough. But in fact it is remarkably difficult. In last week’s letter, Ed Easterling and I showed you why it is a longshot bet in almost every market environment. Returns over a decade or two are usually well above or well below average. Most of all, it’s fairly predictable which side of average will occur.
March 15, 2019
Last week, I described the enormous challenges retirees face. One reason for that, aside from insufficient savings, is that markets haven’t delivered the returns many experts said we could plan on.
March 8, 2019
I have long said I don’t want to retire. I enjoy my work. It’s not too physical, other than the travel (which is finally beginning to wear on me). Also, my savings are not yet sufficient to sustain the retirement lifestyle Shane and I want. I could retire now but would rather wait.
March 1, 2019
In an ideal world, we wouldn’t have to read the Federal Reserve’s rabbit entrails to discern the economy. But Since the Fed exists in the real world, and its decisions matter, we have to pay attention.
February 22, 2019
An old joke says economists predicted 15 of the last 10 recessions. In other words, they’re frequently wrong and often too pessimistic.
February 15, 2019
More than 10 years ago some Australian readers begin regaling me with the ideas of economist Bill Mitchell of the University of Newcastle in New South Wales. He was teaching about something he called (and he coined the term) Modern Monetary Theory. I looked into it and fairly quickly dismissed it as silly. Actually printing money as an economic policy? Get serious.
February 8, 2019
The Soviet Union’s collapse and spread of semi-free markets through Eastern Europe seemingly ended the socialism vs. capitalism argument. Capitalism had won. Collectivist economies everywhere began turning free. Even communist China adopted a form of free market capitalism although, as they say, with “Chinese characteristics.”
February 1, 2019
“Plans are worthless, but planning is everything.”
—US President Dwight D. Eisenhower
January 25, 2019
"To be absolutely certain about something, one must know everything or nothing about it."
January 18, 2019
The production of souls is more important than the production of tanks.... And therefore I raise my glass to you, writers, the engineers of the human soul.
January 11, 2019
For a couple of years now, the economic narrative has shown a comparatively strong US against weakness in Europe and some of Asia (NOT China). The US, we are told, will stay on top. I agree with that, as far as it goes... but I’m not convinced the “top” will be so great.
January 4, 2019
Double, double, toil and trouble;
Fire burn and cauldron bubble.
…By the pricking of my thumbs,
Something wicked this way comes.
- William Shakespeare, Macbeth, Act IV, Scene I, 1606
December 28, 2018
A winters day,
In a deep and dark December…
“Wait, it doesn’t feel like winter. It’s not deep and dark, and it’s actually warm, and the sun is shining.
Toto Shane, I don’t think we’re in Kansas Texas anymore.”
December 21, 2018
We have reached the best time of year, when we can look to the future with hope. We can stop wondering what will happen in 2018 and look forward to 2019. The investment industry always does this enthusiastically, as you will see in forecasts everywhere the next few weeks.
December 14, 2018
Everybody is suddenly talking about the inverted yield curve. They’re right to do so, too, but alarm bells may be premature. Inversion is a historically reliable but early recession indicator. The yield curve isn’t saying recession is imminent, even if it were fully inverted, which it is not.
December 7, 2018
Someone asked recently how many times I had “crossed the pond” to Europe. I really don’t know. Certainly dozens of times. It’s been several times a year for as long as I remember.
November 30, 2018
In an increasingly divided world, we all share one great desire: self-preservation. Not just humans, either. The survival instinct exists in almost every living thing. Humans simply have greater ability to do something about it.
November 23, 2018
The selloff in GE is not an isolated event. More investment grade credits to follow. The slide and collapse in investment grade debt has begun… (and later) Don’t be fooled by bond prices holding up, because trading volumes are down. There are fewer bids in the market, and the dispersion of bids is wider. It is time to jog—not walk—to the exits of credit and liquidity risk.
- Scott Minerd, Guggenheim Partners Chief Investment Officer
November 16, 2018
Science tells us energy can neither be created nor destroyed within a closed system. Whatever amount is there will stay the same, though it might change form. If only the same were true for debt.
November 2, 2018
But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than...
October 26, 2018
Is debt good or bad? The answer is “Yes.”
October 19, 2018
Today, rather than tackle some big macroeconomic issue, we’ll go back to this letter’s roots and look at market timing and portfolio construction issues. I expect this will get both enthusiastic support and at the same time, make a number of readers uncomfortable—if not annoyed.
October 12, 2018
An odd aspect of being a writer is you never know in advance what will excite readers. I’ve written letters I thought very provocative only to draw mostly yawns.
October 5, 2018
I have to confess something: I run a huge trade deficit. It’s not with China or Mexico, but with Amazon. I buy all sorts of goods from them and Jeff Bezos has yet to spend a penny with me. It’s just not fair.
September 28, 2018
“A conservative is someone who stands athwart history, yelling stop, at a time when no one is inclined to do so, or to have much patience with those who so urge it.”
September 14, 2018
Economic reality isn’t black and white. At any given time, both good things and bad things are happening. Ignoring one side because it doesn’t fit your preferred outlook is an excellent way to go badly wrong.
September 7, 2018
Hardly a day passes without some sort of China news in the financial headlines. There’s a good reason, too. China is the global economy’s 600-pound gorilla, second in size only to the US. Yes, it was largely a copycat business economy up until the early 2000s, but Chinese entrepreneurs have really taken charge in the last 10 years. Fueled by the profits from huge consumer demand, they are expanding not only in China but globally. This story is largely ignored in the US and in much of Europe. We...
August 31, 2018
“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”
―Ernest Hemingway, The Sun Also Rises
August 24, 2018
Back in 1936, in Esquire magazine of all places, F. Scott Fitzgerald wrote something profound. “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.”
August 17, 2018
In my business, there is a fine line between standing by your conclusions and being unwisely stubborn. But no matter what I say, people will still label me a perma-bear or perma-bull—often at the same time. It’s an occupational hazard to which I am accustomed.
August 10, 2018
I’m back from Camp Kotok. As always, it was both rejuvenating and enlightening. The Maine woods, lakes, and general environment encourage more candor than I see most places. This, combined with David Kotok’s talent for assembling a diverse group and the always-marvelous Maine hospitality, made it another great success. It helps that David aggressively enforces Chatham House Rules and the Jackson Hole Rule. So you really don’t have to worry what you say.
August 3, 2018This week I have something special for you: an update of “The Distribution of Pain,” one of 2017’s most popular letters. I say “popular” just in terms of feedback and reprint requests. It was thought-provoking but also sobering. I started with the original version, re-edited to clarify a few points, and added some new comments. It is still a timely, important topic.
July 27, 2018
We are all on a debt-filled train that is eventually going to crash, and if you are on it, it won’t stop to let you off first. Jumping at the last minute is not a good option, either. So what do you do? You take action now, while you have time.
July 20, 2018
Standing in front of a speeding train is rarely a good idea, but most investors are doing it right now. They survive only because the debt train is still way down the tracks. It is nonetheless coming, and you will want to move before then. But which way?
July 13, 2018
We are approaching the end of the debt Train Wreck series. I’ve spent several weeks explaining why I think excessive debt is dragging the world economy toward an epic crash. The tracks ahead are clear for now but will not remain so. The end probably won’t be pretty. But there’s good news, too: we have time to get our portfolios, our businesses, and our families prepared.
July 6, 2018
I hope everyone had a happy Fourth of July, whether it was a holiday for you or not. The United States’ birth as an independent nation was, among other things, an economic event that changed history far beyond our borders. We hope and believe it was for the better.
June 29, 2018
In describing the global debt train wreck these last few weeks, I’ve discovered a common problem. Many of us define “debt” way too narrowly.
June 22, 2018
Italian dictator Benito Mussolini at least made the trains run on time, according to legend. But other sources say the nation’s railway system remained horrible under his rule (see here, here, and here).
June 15, 2018
In describing various economic train wrecks these last few weeks, I may have given the wrong impression about trains. I love riding the train on the East Coast or in Europe. They’re usually a safe and efficient way to travel. And I can sit and read and work, plus not deal with airport security. But in this series, I’m concerned about economic train wrecks, of which I foresee many coming before The Big One which I call The Great Reset, where all the debt, all over the world, will have to be...
June 8, 2018
Rather go to bed without dinner than to rise in debt.
What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?
There are no shortcuts when it comes to getting out of debt.
Modern slaves are not in chains, they are in debt.
Debt isn’t always a form of slavery, but those old sayings didn’t come from nowhere. You can find hundreds of quotes on the Internet discussing the problems of debt....
June 1, 2018
Train wrecks and their financial analogues are a worldwide phenomenon. Europe, as I have written for several years, remains a giant accident waiting to happen—as Italy reminded us last week. You may have noticed the results when US trading resumed Tuesday. A wider crash may not be imminent but is certainly possible and will have worldwide effects if/when it happens. So now is a good time to review what’s already happened and what could be coming.
May 25, 2018
My still-unfolding Train Wreck series is getting a lot of attention. It’s not exactly good news, but people at least appreciate the warnings. Thanks to all who sent thought-provoking comments. I always consider them carefully.
May 18, 2018
Today we will summarize something I’ve been thinking about for a long time. Exactly how will we get from the credit crisis, which I think is coming in the next 12–18 months, to what I call the Great Reset, when the global debt will be “rationalized” via some form of nonpayment. Whatever you want to call it, I think a worldwide debt default is likely in the next 10–12 years.
May 11, 2018
In last week’s letter, I mentioned an insightful comment my friend Peter Boockvar made at dinner in New York: “We now have credit cycles instead of economic cycles.” That one sentence provoked numerous phone calls and emails, all seeking elaboration. What did Peter mean by that statement?
May 4, 2018
Since last week’s letter, I have flown enough to send me over 100,000 miles on American Airlines this year and make Executive Platinum. That is not necessarily a good thing. But wow, I learned a lot between all those flights.
April 27, 2018
Getting a fever is no fun. You likely get chills, you sweat, and you’re just generally uncomfortable. You get tired easily and need to rest. But here’s the weird part: Fever isn’t the real problem. It’s a symptom of something else. You must treat whatever that is to relieve the fever.
April 20, 2018
Photo: Getty Images
China is the world economy’s elephant in the room. We can’t possibly ignore it, yet many try anyway. Admitting China’s influence forces us to admit the world is changing—and we all must change with it.
April 14, 2018
This weekend millions of Americans and/or their accountants are preparing to file income tax returns. Tax day is an annual event as significant as the Fourth of July – though far less fun.
April 6, 2018
The future is tantalizing because it is both unknown and unknowable. At best, we can make educated guesses about tomorrow or next year. Sometimes, it’s actually hard to understand what happened in the past, much less to chart how the future might unfold.
March 31, 2018
Here in Texas you know spring is here when our state flower, the bluebonnet, pops up everywhere. I was at the Masters in Augusta last year, and the azaleas were beautiful. But they are cultivated and take a lot of work to bring out their beauty.
March 23, 2018
Valuing a stock isn’t hard. Each share is worth exactly as much as a buyer offers you when you try to sell. Quite simple. But of course, there’s more to it.
March 18, 2018
It’s been a week and I’m starting to recover from my post-SIC high. It’s a weird feeling. I love SIC, yet processing it all takes time. Imagine one of those brain maps that shows the neurons opening new pathways. That’s what SIC does. It opens connections that I didn’t previously have.
March 11, 2018
We’ve just wrapped the Strategic Investment Conference, which in many ways is the best week of my year. Seeing so many old friends, making new ones, and having countless fascinating conversations is my idea of heaven.
March 3, 2018
I’m going to wrap up our series on the problems of collecting and analyzing data in the first half of this letter, and then I’ll quickly comment on the Trump tariffs. I think both topics will feature in this week’s Strategic Investment Conference. At the end of the letter there will be a link to our Virtual Pass, which will allow you to watch the conference live or at your leisure and to read the transcripts of the presentations.
February 25, 2018
“Nobody knows anything.... Not one person in the entire motion picture field knows for a certainty what’s going to work. Every time out it’s a guess and, if you’re lucky, an educated one.”
– William Goldman, Oscar-winning screenwriter
February 18, 2018
Federal Reserve officials like to say their policy course is “data-dependent.” That sounds very cautious and intelligent, but what does it actually mean? Which data and who’s interpreting it? Let’s ask a few questions.
February 10, 2018
Last week’s turbulence shined a harsh spotlight on the stock market. Appropriately so, if that’s where your investments are. But in the hubbub many investors are missing the deeper and far more urgent bond market issues.
February 3, 2018
If you travel as much as I do, you come to value nonstop flights. Connections introduce uncertainty and potential delays, not to mention what often feels like wasted time; but sometimes connections are just unavoidable. But you don’t want them to be too tight. Those five-minute sprints from one concourse to another are never fun. Better to have some breathing room.
January 27, 2018
Fictitious Wall Street villain Gordon Gekko famously declared, “Greed is good.” I think actual Wall Street titans would mostly disagree. They would change one word. Instead of “greed,” they would say, “Growth is good.” That is Wall Street’s real mantra. Growth is the magic elixir we all need.
January 20, 2018
The holidays are fading from memory, and 2018 is off to a good start, economically speaking. Most of the forecasts I’ve read expect a good year – not a blockbuster year or a horrendous one, but a mild pickup that ought to satisfy investors. Even the bears seem less confident than usual.
January 12, 2018
Only two weeks in and 2018 is already breaking records – mostly in a good way. But that leaves 50 potentially less enjoyable weeks to go. So rather than focus on promising current events, I think I’d better dip back into my annual forecast bag and share a few more highlights with you.
January 5, 2018Greetings from Hong Kong, where the locals are preparing to welcome the new year on February 16. While 2018 is the Year of the Dog on the traditional Chinese calendar, on the nontraditional Mauldin calendar we call it the Year of the Octopus. I don’t know exactly what’s coming, but I’m pretty sure it has more than four limbs.
December 31, 2017
In addition to popping champagne corks and black-eyed peas (at least in the South) on New Year’s Day, year-end brings something else for economists and portfolio managers: annual forecasts. People want to know what the coming year will bring. I would like to know, too. But since I’m on the other side of your monitor, I must give you my own forecast. Caveat emptor applies.
December 17, 2017
The holidays always prompt us to look both forward and back. Soon you’ll start seeing 2018 forecasts. I’ll review some of them for you and give you my own in the coming weeks. But first, I want to take a look back at 2017 – and do it a little differently.
December 9, 2017
Almost every weekday, some arm of the US government issues some sort of economic statistic. News media and financial analysts review and report it. Then 99.9% of the adult population, and probably 90% of the financial industry, forget all about it. And they’re probably right to do so.
December 2, 2017
Earnings don’t move the overall market; it’s the Federal Reserve Board…. Focus on the central banks and focus on the movement of liquidity…. Most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.
– Stan Druckenmiller (hat tip Steve Blumenthal)
November 25, 2017
“Life invests itself with inevitable conditions, which the unwise seek to dodge, which one and another brags that he does not know, that they do not touch him; but the brag is on his lips, the conditions are in his soul. If he escapes them in one part they attack him in another more vital part. If he has escaped them in form and in the appearance, it is because he has resisted his life and fled from himself, and the retribution is so much death.”
– Ralph Waldo Emerson, “Compensation”...
November 17, 2017
“Vanity of vanities, saith the Preacher, vanity of vanities; all is vanity.”
– Ecclesiastes 1:2, King James Version (attributed to King Solomon in his old age)
November 10, 2017
When you write about economics, you learn very quickly that the economy doesn’t care what you say about it. The forces that drive it are beyond any one person’s comprehension, much less control.
October 29, 2017
Lately, my life has been completely packed with speeches, meetings, and in-depth, often lengthy, conversations. Plus ongoing research and writing, of course. It all culminated Thursday afternoon at the beginning of a business meeting with the leadership team from a firm that will become a significant new business partner. At the very beginning of the meeting, the head of the firm leaned over to me and asked, “What’s on the top of your mind? What are you thinking about?” The previous night we...
October 22, 2017
This week’s letter will be more like an Outside the Box than a Thoughts from the Frontline. I am feeling under the weather, and while I can read and move around somewhat, I am really not thinking all that well and am not up to wasting your time writing a letter that neither you nor I will be happy with.
October 14, 2017
Strange things did happen here
No stranger would it be
If we met at midnight
In the hanging tree.
– Lyrics from the theme song of The Hunger Games
If buttercups buzz’d after the bee,
If boats were on land, churches on sea,
If ponies rode men and if grass ate the cows,
And cats should be chased into holes by the mouse,
If the mamas sold their babies
To the gypsies for half a crown;
If summer were spring and the other way round,
Then all the world would be upside down.
– Lyrics from a 17th...
October 7, 2017
Here’s a surprisingly profound question: What is a promise? Dictionaries offer various definitions. I like this one: “An express assurance on which expectation is to be based.”
September 30, 2017Today we’ll continue to size up the bull market in governmental promises. As we do so, keep an old trader’s slogan in mind: “That which cannot go on forever, won’t.” Or we could say it differently: An unsustainable trend must eventually stop.
September 23, 2017
If you’re idly conversing with someone you don’t know well, the weather is usually a safe topic. It affects everyone in some way, so it’s a shared experience – but there’s something else, too. The weather is no one’s fault. It is what it is, so you need not worry that the other person will blame you for it. None of us can control the weather. And lately, the weather has been interesting, unless you had to live through its more extreme manifestations. Then it’s been hell. Before this week, I...
September 16, 2017
This time is different are the four most dangerous words any economist or money manager can utter. We learn new things and invent new technologies. Players come and go. But in the big picture, this time is usually not fundamentally different, because fallible humans are still in charge. (Ken Rogoff and Carmen Reinhart wrote an important book called This Time Is Different on the 260-odd times that governments have defaulted on their debts; and on each occasion, up until the moment of collapse,...
September 10, 2017
If you establish a democracy, you must in due time reap the fruits of a democracy. You will in due season have great impatience of public burdens, combined in due season with great increase of public expenditure. You will in due season have wars entered into from passion and not from reason…
– Benjamin Disraeli, prime minister of England, novelist
In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control, and those dedicated to the goals the...
September 2, 2017
Ask a child what he or she wants to be when they grow up, and you’ll probably get a standard answer: firefighter, doctor, teacher – all occupations we learn to recognize at an early age. Rarely do you hear a young one say, “I want to be a writer.” I don’t recall ever saying it. Yet here I am, with writing as one of my several occupations.
August 26, 2017
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
– Sir John Templeton
August 20, 2017
“There is only one side of the market and it is not the bull side or the bear side but the right side.”
– Jesse Livermore
“At least us old men remember what a real bear market is like. The young men haven’t got a clue.”
– Jeremy Grantham
August 12, 2017
All over America, kids who were fortunate enough to go to summer camp are busy telling mom and dad what they did. Their stories will be suspiciously incomplete, but that’s OK. We know they learned something.
August 4, 2017
Perhaps the best part of being a writer is the chance to interact with readers. I can’t tell you how much I’ve learned from you over the years. Whether it’s through our online comment threads or emails or conversations in the hallway at a conference, nothing pleases me more than to share thoughts with you. The exchanges are always stimulating, even when we disagree. Believe it or not, I make a special point to read those who disagree with me if they come armed with cogent thoughts. And I will...
July 29, 2017
“I never liked quantitative easing. Flattening the yield curve is not stimulative; flattening the yield curve is anti-stimulative.”
– Ken Fisher
“There is a limit to how much the United States Treasury can borrow.”
– Alan Greenspan
“In other words, we have the models we have because of inertia and theology, but also because all we can do is all we can do.”
– Kit Webster
“[T]he specific manner by which prices collapsed is not the most important problem: A crash occurs because the market...
July 22, 2017
“The world in which we live has an increasing number of feedback loops, causing events to be the cause of more events (say, people buy a book because other people bought it), thus generating snowballs and arbitrary and unpredictable planet-wide winner-take-all effects.”
– Nassim Nicholas Taleb, The Black Swan
July 19, 2017
“We’re already in a trade war with China. The problem is we’ve not been fighting back.”
– Peter Navarro
“The battle for Helm’s Deep is over. The battle for Middle Earth is about to begin.”
– Gandalf the White
July 9, 2017
“The job of the central bank is to worry.”
– Alice Rivlin
“The central bank needs to be able to make policy without short-term political concerns.”
– Ben Bernanke
“… from the standpoint of the overall economy, my bottom line is we’re watching it closely but it appears to be contained.
– Ben Bernanke, repeatedly, in 2007
“Would I say there will never, ever be another financial crisis? You know, probably that would be going too far, but I do think we’re much safer, and I hope that it will...
June 30, 2017
“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”
– Abraham Lincoln
“If more of us valued food and cheer and song above hoarded gold, it would be a merrier world.”
– J.R.R. Tolkien
June 25, 2017
“A serious writer may be a hawk or a buzzard or even a popinjay, but a solemn writer is always a bloody owl.”
– Ernest Hemingway
June 17, 2017
“China’s economy has entered a state of new normal.”
– Premier Li Keqiang, 2015
“Success breeds a disregard of the possibility of failure.”
– Hyman Minsky
June 11, 2017
“Forget the past. The future will give you plenty to worry about.”
– George Allen, Sr.
“I try not to worry about the future, so I take each day just one anxiety attack at a time.”
– Tom Wilson
June 3, 2017
“I often joke that 100 years from now I hope people are saying, ‘Dang, she looks good for her age!’”
– Dolly Parton
“Just because you live 20 years or 100 years doesn’t make it less meaningful. They’re both short amounts of time. So all we can do is just live in that time, whatever time we’re given.”
– Ansel Elgort
“If I had more time, I would have written a shorter letter.”
– Blaise Pascal, 1657 (and a few score other later attributions)...
May 27, 2017
“Premature optimization is the root of all evil…”
– Donald Knuth, from his 1974 Turing Award lecture